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Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts
This year, millions of Americans are making New Year’s resolutions for better lives. For most of them, that means better finances. Television, magazines, and tabloids are ablaze with the top financial resolutions to save money in 2010. Money is a popular thing these days. So many politicians, businessmen, and newscasters are talking about money, and in such large amounts that it is hard to imagine what use the few dollars you hold in your pocket really are.
The past few years have seen several major calamities and overhauls in the national economic scene. Unfortunately, these are not merely isolated economic fluctuations, but signs of the unraveling of our entire economic system. The housing market crash, the mortgage meltdown, and the demise of several national banks were all dominoes in a greater and imminent collapse, which started with the lowering of banking standards from years before. (See “In Whom Do We Trust?” April 2009) What is next?
This decade has seen unprecedented government intervention and control, with the business industry being the latest sector to see government tampering. In September 2008 the federal government stepped in to bail out AIG, one of the world's largest insurers. Then on June 1st 2009, the government bailed out General Motors, the second-oldest member of the Dow Jones Industrial Average. Now the Obama administration is calling for yet another stimulus bill, supposedly focusing on job creation. The Heritage Foundation, a public policy research institute published a report citing the failure of Obama’s previous stimulus bill. “In January 2009, White House economists predicted that the stimulus bill would create (not merely save) 3.3 million net jobs by 2010. Since then, 3.5 million more net jobs have been lost, pushing the unemployment rate above 10 percent,” said Brian Riedl, the Heritage Foundation's lead budget analyst.
The fact is that more money alone has never solved economic problems. If the government run economy is consistently faltering, that means that the procedures are failing. The situation we have today is like a convoluted operating room, with so many instruments and medications, that we can’t even diagnose the problem, so as to even begin to find a solution. One thing is clear: the stimulus option does not work, and has a long history of not working. The Heritage Foundation reports, “The idea that increased deficit spending can cure recessions has been tested repeatedly, and it has failed repeatedly.” In the 1930s, Franklin D. Roosevelt’s “New Deal” doubled federal spending, but unemployment remained above 20 percent until World War II. President Bush tried to improve the economy through Government spending in 2001, and 2008, but the economy continued to worsen both times, exacerbated by the costs of the war. Now Obama is attempting yet another stimulus bill, while at the same time increasing national spending (a.k.a., national debt).
The most dismal factor in all of this is that the money being spent to fix the economy is coming from taxpayers. Government intervention works on the principle that the Government can spend your money better than you can to fix your problems. That’s exactly what our government has been doing, and now our nation is 12 trillion dollars in debt. According to information from the U.S. Treasury and Federal reserve, the burden of debt per taxpayer is $112,671. That’s how much the government has spent on you. In a nation where 15 million people are unemployed, we can only wonder what those people would have done if they had their own money. President Ronald Reagan believed that “there is nothing wrong with America
Labels: Economics, MorningStar News
The Other Side of the Bank and Credit Market Crash
Richard Edwards moved to Horseheads this past October after the economic depression engulfed the market. Mr. Edwards is a programmer and web designer from Southern California, but over the past years he became involved in the real estate market. His story captures the depth of the shift in fortunes that resulted from the 2008 economic crash, and gives a good snapshot to how exactly such a depression affects individuals.
Ten years ago, Mr. Edwards and his wife took the money from their mortgage and invested it in real-estate. Through a series of quick ‘flips,’ (quick re-selling of property) he was able to make a significant amount of money very quickly. That made it an effective and attractive field of business. By leveraging the property, and taking out more mortgages, he was able to buy more real-estate. The theory was that as the banks gave out loans, the people who bought the land and houses would pay it back eventually. The original loans that the investor bought the property with would start with a very low “teaser rate” of interest, and the investment would appreciate, or increase in value, before it expired. And even if the investment didn’t appreciate in time, and investor could keep refinancing until it was sold. “With so many different lenders, we could always refinance to get out of paying real interest rates, especially on the larger payments that would pay down the larger loans” said Mr. Edwards. “As long as the real estate value kept going up, and as long as we could keep on refinancing, then it was a profitable business that went on for 10 years.”
That worked out great, up until the mortgage lending meltdown in 2007, caused mostly by inaccurate credit rating, speculation, and the changing policies of banks and the government; all brought to a head by a sudden boom in the real estate market. “When the mortgage lending meltdown made national news, then suddenly no lenders anywhere would refinance anything. And one by one we watched these teaser rates expire, and were unable to refinance them to more affordable loans. As the loans reset, we found they were no longer profitable.” With a large portfolio of investments on hand, Mr. Edwards found his assets value dropped from 6 digit to 4 digit value, and his liabilities ranging in the 7 and 8 digit figures. “We were borrowing money out of the property we had purchased to use them just as down payments on the larger loans of other properties.”
Then at the end of October 2008, the strain of foreclosures and default loans finally pulled their toll on the banks, causing the big bank and credit market crash that is still rippling through our economy and industries today. For people like Richard Edwards who were already reeling from the mortgage lending meltdown, this was the final straw. “I didn’t have any time to react to it. At this time I was still unemployed, and was socked with payments that were unaffordable, and had at this time exhausted my savings.” Richard tried to make any profit he could out of the property he still had on hand, but through this entire time no one was buying anymore. Before he might have gotten several offers on a piece of land within two weeks of putting it on sale, but now he might go three months without even one offer. “It’s like a shell game, where there’s a bunch of shells being moved around, and you wonder which one has the equity in it, the answer is none of them do!”
While talking to Richard Edwards, I was struck with the scope of the real estate market crash. Throughout the months of senate committees and investigations that followed the market crash, it was revealed how deep and corrupt the problems with the credit and mortgage system really were. But for Mr. Edwards and many of the other hundreds of thousands of people who lost their jobs, it was nothing less than a screeching halt, wild spin, and hard crash to an entire field of business. While it is easy to point out the irresponsibility of banks in the amount of money they would lend out on poor credit, it is also important to keep in mind the domino effect of calamities that hit viable investors like Mr. Edwards. “Originally I had set aside around $250,000 as a contingency, thinking that a quarter of a million dollars would be enough to weather any wrinkle in the real estate market. It didn’t occur that I would be socked with both long term unemployment, and a decline in real estate values, and the inability to refinance loans. So it was the culmination of those three calamities, any one of which would have been difficult to weather, which quickly burned through my savings.”
Many today are quick to point out individuals living beyond their means as the ones responsible for our economic state. In Richard Edwards’s case, it was his entire field that collapsed. In talking to him, he told me that he does not consider it a personal failure for himself. He did what he could to prepare, and even in the end he never filed for bankruptcy. “I could have weathered one, maybe two, but not all three calamities at once.” In the end, with enormous interest rates, debts, and a lump of semi-worthless real estate, Mr. Edwards told me he thought it was best just to walk away. Now he has picked up web designing and programming again, as well as adventures that involve canoeing, instead of the stock market.
Labels: Business, Economics, MorningStar News
We have all heard the advice at some point that if you want to be successful, get a good education, and find a good job with good benefits. Assuming that you are a good worker and you don’t make bad financial decisions, you should be set to make a career, build a retirement, and at best stay economically secure for your life. Unfortunately, our economic world is a much more harrowing place these days where survival is the key: survival for companies as they seek to stay out of the red, and survival for employees as they try and hold onto their source of income.
Since the economic downturn has hit the roots of the financial industry, nearly every sector is experiencing unemployment. According to data from the US Department of Labor, the highest rate of unemployment is in the service sector, which affects nearly every service the average citizen use on a daily basis, but manufacturing is also experiencing a financial hit.
Job security isn’t the legendary shelter that many people once believed it to be. In these hard economic times where not even banks are secure, companies often need to cut back to survive. In the changing economy, even some of the strongest companies are no longer as secure as they once were believed to be. Joe Dabroski, a resident of Sayre Pennsylvania, lost his job this past January after 25 years with IBM, a company which has held to the strongest standards of employee retention, even through the Great Depression.
Joe Dabroski graduated from Clarkson College (now Clarkson University) with a B.A. in Mechanical Engineering in 1983. There he met his wife Marion, who graduated the following year with a degree in Chemical Engineering. IBM was actively recruiting top college graduates in the early 1980s. Joe interviewed with an IBM recruiter directly from Clarkson’s campus, and was hired as a development engineer at the IBM’s Endicott site. He was quickly promoted over the years, and reached the position of Senior Engineer in about 10 years. In 1992 he moved to the branch of applications engineering. There he worked with outside customers, describing and promoting silicon technology to other businesses and corporations. He worked in the micro-electronics division, which was the primary developer of the high technology silicon chips within the company. In 2002 he moved to a larger division, working on IBM’s core silicon technology. Here he was an operations analysts doing staff work for management, and working from home. This was the position he held until he was laid off in January 2009.
Mr. Dabroski said that by January he knew it was only a matter of time before he would be affected by IBM’s job cuts. “It was the third cycle of immediate layoffs, but I was finally affected. It finally got to the point where they were past cutting down to the bone, and they were cutting some of the bones out”, said Mr. Dabroski. At the time he was working in Sales Operations, and within an 18 month period 70 percent of the fifteen employee department had been laid off.
But even with such a strong background and experience with the company, Mr. and Mrs. Dabroski weren’t taking any chances. “When Joe started at IBM it was part of the company’s policy that he wouldn’t get laid off.” Marion Dabroski said. “The first time there were layoffs, it was an eye-opener for us, so we decided then that we weren’t going to overextend ourselves. You couldn’t be sure to know how long this good thing was going to last. And so we had to prepare ourselves for it not lasting forever.” The Dabroskis paid off their home mortgage, and stayed out of debt. “I can’t tell you what a comfort that was to us when he lost his job that we weren’t worried if we could make our house payment.”
When Joe Dabroski was laid off, he was given 30 days to search for another job within the company. But by the time the month was over, neither he nor anyone he knew had found another position in IBM. But Joe was able to quickly find a new job with the help of IBM’s out placement services that came with their severance package. He now works for Stateline Auto Auction in the accounting office. On the topic of job security, he says “Job security is very much based on what skills you can develop and how you can articulate them and describe what they are, so you that can move within the company from job to job, or to another company.” Accordingly, for a responsible worker, your security will be invested in what you can do, and not a dependency on what a company promises you. By developing your skills, you have something to take with you if you lose your job, and you can bring it to a new job. “In essence” said Mr. Dabroski, “if you’re able to do that, then you are secure in the effect of being able to demonstrate that you can help a new company, or a new position to succeed.”
For the Dabroskis, keeping a secure family is the priority. Joe said he and Marion were able to work together during his period of unemployment. “We were in lock step on how to approach these things, and when we found out that I lost my job we weren’t struggling with each other because we were already prepared.” As Christians, if we place our security first in our Faith and our Family, we’ll find that God is faithful, and will never downsize His kingdom. Or as the Psalmist says, “Except the LORD build the house, they labor in vain that build it.” So rest your security first on the Kingdom of God, “and all these things will be added unto you.”
Since the economic downturn has hit the roots of the financial industry, nearly every sector is experiencing unemployment. According to data from the US Department of Labor, the highest rate of unemployment is in the service sector, which affects nearly every service the average citizen use on a daily basis, but manufacturing is also experiencing a financial hit.
Job security isn’t the legendary shelter that many people once believed it to be. In these hard economic times where not even banks are secure, companies often need to cut back to survive. In the changing economy, even some of the strongest companies are no longer as secure as they once were believed to be. Joe Dabroski, a resident of Sayre Pennsylvania, lost his job this past January after 25 years with IBM, a company which has held to the strongest standards of employee retention, even through the Great Depression.
Joe Dabroski graduated from Clarkson College (now Clarkson University) with a B.A. in Mechanical Engineering in 1983. There he met his wife Marion, who graduated the following year with a degree in Chemical Engineering. IBM was actively recruiting top college graduates in the early 1980s. Joe interviewed with an IBM recruiter directly from Clarkson’s campus, and was hired as a development engineer at the IBM’s Endicott site. He was quickly promoted over the years, and reached the position of Senior Engineer in about 10 years. In 1992 he moved to the branch of applications engineering. There he worked with outside customers, describing and promoting silicon technology to other businesses and corporations. He worked in the micro-electronics division, which was the primary developer of the high technology silicon chips within the company. In 2002 he moved to a larger division, working on IBM’s core silicon technology. Here he was an operations analysts doing staff work for management, and working from home. This was the position he held until he was laid off in January 2009.
Mr. Dabroski said that by January he knew it was only a matter of time before he would be affected by IBM’s job cuts. “It was the third cycle of immediate layoffs, but I was finally affected. It finally got to the point where they were past cutting down to the bone, and they were cutting some of the bones out”, said Mr. Dabroski. At the time he was working in Sales Operations, and within an 18 month period 70 percent of the fifteen employee department had been laid off.
But even with such a strong background and experience with the company, Mr. and Mrs. Dabroski weren’t taking any chances. “When Joe started at IBM it was part of the company’s policy that he wouldn’t get laid off.” Marion Dabroski said. “The first time there were layoffs, it was an eye-opener for us, so we decided then that we weren’t going to overextend ourselves. You couldn’t be sure to know how long this good thing was going to last. And so we had to prepare ourselves for it not lasting forever.” The Dabroskis paid off their home mortgage, and stayed out of debt. “I can’t tell you what a comfort that was to us when he lost his job that we weren’t worried if we could make our house payment.”
When Joe Dabroski was laid off, he was given 30 days to search for another job within the company. But by the time the month was over, neither he nor anyone he knew had found another position in IBM. But Joe was able to quickly find a new job with the help of IBM’s out placement services that came with their severance package. He now works for Stateline Auto Auction in the accounting office. On the topic of job security, he says “Job security is very much based on what skills you can develop and how you can articulate them and describe what they are, so you that can move within the company from job to job, or to another company.” Accordingly, for a responsible worker, your security will be invested in what you can do, and not a dependency on what a company promises you. By developing your skills, you have something to take with you if you lose your job, and you can bring it to a new job. “In essence” said Mr. Dabroski, “if you’re able to do that, then you are secure in the effect of being able to demonstrate that you can help a new company, or a new position to succeed.”
For the Dabroskis, keeping a secure family is the priority. Joe said he and Marion were able to work together during his period of unemployment. “We were in lock step on how to approach these things, and when we found out that I lost my job we weren’t struggling with each other because we were already prepared.” As Christians, if we place our security first in our Faith and our Family, we’ll find that God is faithful, and will never downsize His kingdom. Or as the Psalmist says, “Except the LORD build the house, they labor in vain that build it.” So rest your security first on the Kingdom of God, “and all these things will be added unto you.”
Labels: Economics, MorningStar News
Hardly a day goes by without more reports of government funds being thrown into the financial market. Although we are encouraged to trust the administration and this new stimulus plan, any thinking person can do the calculations, and see that it just doesn’t add up. When you’re dealing with huge concepts like billions of dollars, it is dangerously commonplace to hear that the new proposed Federal bailout package is over $1 trillion now. As our national deficit soars past $10 trillion, all of this additional spending to our budget will cause even great problems down the road. But all we see are politicians and lawmakers running around trying to save the day with more money, and paying no heed to the impending night. Basic economics, history, and reason all prove that when the government tampers with the economy, the results are negative.
It looks like all of us in Chemung County might finally get a look at some of that Federal money, after all. Last month the Elmira Savings Bank received a check from the government totaling $9.09 million in stimulus dollars. Assistant Vice President Kim Elliot says this will enable them to generate more loans, and to promote growth in the community. Michael Hosey, the president and chef executor of the bank assures that Elmira Savings is “still strong and growing.” The danger now is that as more money is pumped into the system, our savings will lose value as the rest of the market experiences inflation.
The banking system, and in some ways the entire economic system relies on a trust. When you trade currency for goods or services, that dollar bill is a promise of a set value. Inflation breaks that trust. In the same way, the banks use the funds you deposit to finance other people homes, help them buy a new car, and essentially flows through the market in a stable pattern that ensures your money will be there when you withdraw it. Irresponsibility and poor money management breaks that trust. This entire economic crisis started when the banks were making out large loans to people to buy houses, and was exacerbated by inflated collateral prices, all of which resulted in net losses to both the financial and banking industries.
Tom Woods, the manager of the Solutions Federal Credit Union says that this problem began back in the late 1990s, when banks lowered their standards of loaning money, and tried to create equality while ignoring the debt-to-income ratios that were used for decades. “It’s not popular, but not all borrowers are created equal” said Mr. Woods. “Philosophy went if everyone has car and house, you have equality, and happiness, and prosperity. And like many things that look good, the end result can be pain sorrow and misery. If you don’t have the management skills and resources to pay that back, you lose your car or your house.” What happened was that thousands of people would finance their house with a $100,000 loan, and that would inflate the market. Their new home would be appraised at $130,000, with the value of homes was being artificially raised due to and increase in housing loans. When it all finally came back down, the people who had taken out these huge loans were left with big mortgages that were greater than the value of their homes. Then when they foreclosed, the house could be sold for $80,000, and the bank had to absorb a net loss $50 grand.
Tom Woods says the only solution is for people to start living within their means. If the government keeps on bailing us out, we’re headed for another economic emergency, just like the banking and housing crash. Government bailouts are just like the lowering of lending standards. It takes way the responsibility of individuals to pay for their actions. Just like the banks could only absorb so much of other people’s losses, we’re approaching the point as a nation where we can’t take anymore debt. The scary thing is who will really have pay. “I think we’ve forgotten who we work for, and who we’re accountable to” said Mr. Woods. “Really, all that money is the American people’s money. Government doesn’t have money just lying around. It’s like a credit union. If you borrow money and don’t pay it back, it harms all the other credit users.” Those extra trillion dollars the government just borrowed will have to be paid back by the taxpayers. According to the research of a public policy research institute called the Heritage Foundation, Congress’s budget resolutions will require a 3.3 trillion dollar tax increase over the next decade, roughly equaling about an additional $2,600 per household annually. And hold your breath, because we’re still spending,
So what should our perspective as Christians be? Thou shalt not steal for starters, and there are plenty of ways to do that in this world without breaking the law. Try to exercise safe financial practices, and above all trust in God. It’s ironic that at a time when all our economic trusts are failing, our money still says “In God we trust.” I was watching the congressional hearings last week, and one Congressman stated, “It will take someone with the Wisdom of Solomon to sort this all out.” Unfortunately for our politicians, Solomon’s wisdom was a gift from God, and they don’t seem to get along with Him very well. A separation of church and state is a separation of wisdom and reason, as well. If you want to succeed in anything, you need faith in something higher. Tom Woods, the manager of the Solution Federal Credit Union says his faith has been indispensable. “As I see things crumble in many people way of looking at things, I’ve been able to know what’s going on… I am not overly paralyzed by the thought of where we’re headed. God is good, and if I stay the course and stay true to God he will make good things happen. Whether we do good or not, I know God is in control, and for his people He will not leave us or forsake us.”
Labels: Economics, MorningStar News, Politics
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